We propose a simple framework within which taste heterogeneity is a determinant of the scale of production. We show: (i) when taste heterogeneity is small, mass production firms emerge; (ii) when taste heterogeneity is large, small-scale production firms emerge; and (iii) when the degree of taste heterogeneity is intermediate, the symmetric equilibrium is unstable, and mass production firms and small-scale production firms coexist. Furthermore, we extend it to a geographic framework and obtain a historical evolution of American marketing that is characterized by three phases: a geographically fragmented market with small-scale production; a geographically unified market with mass production; and a geographically unified but characteristically segmented market.
(2003.06.18)